Sales of existing homes plunged unexpectedly in January to the lowest level since 1997, a sign that even bargain prices weren't enough to draw home buyers into the dismal housing market.
Existing home sales, which had been predicted to rise, tumbled 5.3% to an annual rate of 4.49 million in January, down from 4.74 million properties in December, according to a report Wednesday from the National Association of Realtors.
Home prices sank nearly 15% from a median of $199,800 a year ago to $170,300 in January. That was the second-largest drop in NAR records. Several factors are behind the slump:
•Foreclosure moratoriums. Many lenders — including mortgage giants Fannie Mae fnm and Freddie Mac fre— have instituted moratoriums on foreclosures, which means sales of foreclosed homes have stalled.
"It's somewhat of a surprise," says Brian Bethune of IHS Global Insight, adding that the most recent report on pending home sales showed an increase. "But existing home sales are driven by foreclosures, and moratoriums on foreclosures will reduce the numbers. That was what had been driving some of the gains."
•Housing rescue plan. Some wary buyers may have stayed out of the market last month, anticipating the Obama administration's housing rescue plan could help them get a better deal.
President Obama announced the plan last week, and details about how it will work are expected next week.
The $75 billion plan, among other things, will include an up to $8,000 tax credit for first-time home buyers that many economists expect will help spur sales later this year.
"The economic situation deteriorated due to the jobless rate and consumer confidence," says Lawrence Yun, chief economist at the National Association of Realtors. "But serious buyers wanted to know what was going to be in the stimulus bill before they signed a contract. They were waiting."
•Interest rate volatility. So many issues are in flux, including weekly volatility in interest rates and uncertainty about the effect of Obama's housing affordability plan, that indicators such as home sales are reflecting ongoing uncertainty about the housing market.
Mortgage applications dropped 15.1% for the week ended Feb. 20, and refinancing activity also declined 19%, according to a Wednesday report by the Mortgage Bankers Association.
The average interest rate for 30-year, fixed mortgages increased to 5.07% from 4.99% the week earlier.
Earlier reports showed home sales had been on the rise.
NAR's previous report found existing home annual sales rate rose 6.5% to 4.74 million in December from 4.45 million in November.